Types of Pricing Strategies
- Choosing the right pricing strategy is essential for a business to be profitable, competitive, and successful in the long run
- Businesses usually focus on one of two options
- High profit margin, lower volume pricing strategies (price skimming strategy) e.g. Marks & Spencer Food
- Lower profit margin, higher volume strategy (penetration pricing strategy) e.g. Tesco
A business may opt for high prices with low sales volume or low prices with high sales volume
- In the diagram above, the top left and bottom right quadrants are the ones most frequently chosen by businesses and the choice is influenced by the brand and nature of the product
- The top right quadrant is where freemium models are usually located
- These firms are able to benefit from high profit margins and high sales volumes e.g Spotify
- These firms are able to benefit from high profit margins and high sales volumes e.g Spotify
- It is essential that businesses choose a pricing strategy that reflects the brand and quality of the product/service
- If they choose the wrong strategy, they can reduce the potential level of profitability